Its old news that the price based Dow is a silly index representative of nothing other than tradition. But did you know it was wrong, off by 50%?
James Mackintosh drops the knowledge:
Start with the last point. Correct for mistakes dating from the days of paper and slide rule, and the Dow in fact passed 30000 for the first time last month, according to Birinyi Associates calculations.
The biggest mistake came from the simplistic recalculation of the average when it was expanded from 12 to 20 stocks. The official Dow record shows a drop of 24%—its worst-ever day—when the market reopened in 1914 after a four-month break because of the start of World War I. In fact, the market and the Dow rose that day, but the record was recalculated without any adjustment when the measure expanded from 12 to 20 stocks two years later. Because some of the new stocks added had lower prices, the new version of the average was pulled down. So, no, there really isn’t any reason to get worked up about the average passing 20000.
Its amusing silliness!
click for ginormous graphic
Source:
We’re Already at Dow 30000, You Just Don’t Know It
The blue-chip index is a poor measure of what investors are doing
James Mackintosh
Wall Street Journal, Jan. 25, 2017
www.wsj.com/articles/were-already-at-dow-30000-you-just-dont-know-it-1485362316
Previously:
Apple Is a Lagging Dow Indicator
Bloomberg MARCH 9, 2015
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